IIPS Quarterly, Volume 6 Number 3
Policy Research

Chinese Trade Policy in Transition
Akira Yasuda
Research Fellow

This paper provides an overview of China’s trade policy since the “reform and openingup” policy, through to the country’s 2001 accession to the World Trade Organization(WTO), and up to today, when the country is a leading player in the international tradesystem.
The history of China’s WTO accession
In 1978, under the leadership of Deng Xiaoping, China switched paths to one of“reform and opening up.” Once China began to travel down this path in earnest, it had
to adjust to the international trading regime. Contemporaneously with the January 1979
establishment of relations between the US and the People’s Republic of China, trade
friction with the US concerning the textiles trade was intensifying. The US implemented
unilateral restrictions on imports from China. In 1983, China, which wanted toguarantee stable exports of its textile products, acceded to the Arrangement regarding
International Trade in Textiles (usually referred to as the Multi Fibre Arrangement, orMFA), which was agreed to under the GATT regime (the forerunner to today’s WTO).
Through the MFA, China secured import quotas for its textile products in each of thecountries party to the arrangement. In the five years from 1984, China nearly doubled
its textile exports. Participation in the MFA resulted in China coming to understand thesignificance of participating in the international trade regime, which was centered on theGATT.
China’s GATT accession negotiations commenced in 1987. However, they did not
go smoothly: The June 1989 Tiananmen Square Incident temporarily caused thenegotiations to break off, and, starting in the 1990s, the US and Europe became more
vocally hostile toward the rapidly rising Chinese economy. In addition, Asian currency
crises and other setbacks delayed Chinese accession. However, in 1998, theinauguration of Zhu Rongji as premier resulted in an acceleration of the negotiations. InNovember 2001, China’s WTO accession was approved at the fourth WTO Ministerial
Conference in Doha, with the official joining taking place in December.
China in the 1980s had clearly focused on the trade expansion effects it would
enjoy from joining the GATT, but it also had an eye on improving its international
standing through accession. By contrast, what Zhu Rongji sought from WTO accession
was its effect as an “external pressure” to advance reforms to domestic
industries—including inefficient nationalized companies and the banking sector—aswell as its function as a venue for China to participate in the process of forminginternational trade rules and to argue for its national interest.
Changes in Chinese attitudes toward the WTO
Immediately following China’s joining of the WTO, other countries expressed positive
views of China’s stance toward the international trading regime. For instance, the US
trade representative positively evaluated the Chinese government’s actions taken
immediately after joining the WTO: “Following China’s accession to the WTO, theChinese government took many impressive steps to implement China’s numerous
commitments. These steps unquestionably deepened China’s integration into theWTO’s rules-based international trading system, while also strengthening China’s
ongoing economic reforms.” China in the 2000s can be praised for successfully
expanding the amount of foreign direct investment by adjusting its domestic legislation
to conform to the WTO regime and opening up its market.
The Hu Jintao administration, which was inaugurated in 2003, began to display
different colors than those of the preceding government. In the restructuring ofgovernment organs that occurred that same year, the National Development and Reform
Commission (NDRC)—which oversees industrial policy—and the State-owned Assets
Supervision and Administration Commission—which reports directly to the PRC StateCouncil—were both formed. Under the NDRC, China’s tendency to emphasize thedevelopment of its own industries in its industrial policy intensified, as exemplified by
the 2004 issuance of an “Automotive Industry Development Policy”—the firstautomobile industry policy implemented in China in a decade. In March 2006, the 11thFive-Year Plan was adopted. The new plan included “enhancement of indigenousinnovation capability,” further spurring the trend.
At this time, there were several significant changes to the trade and investment
environment in which China found itself. First, concerning trade, the January 2005
abolition of quotas on imports of Chinese textiles into the US and the EU brought
textile-related trade frictions to the surface. As China’s foreign exports grew, thetendency of Europe and the US to institute frequent anti-dumping measures intensified.
Because of growing trade friction, China recognized that there were limits to its strategy
of aiming for export-led growth. It increased direct investment in the markets of partnercountries, implementing the so-called zǒu chūqù (“going out”) policy and switching to apath of increasing domestic demand. In other words, one can take the view that, at thistime, one of the incentives for complying with WTO rules—the expectation that theWTO would act as a tool for expanding trade—weakened.
From around 2005, domestic voices calling out the excessive presence of foreign
investment began to grow stronger. The focus of domestic direct investment switchedfrom aspects of quantity to those of quality—achieved, for instance, by adopting thelatest technologies. China thus toned down its encouragement of domestic firms’reforms through the aggressive use of foreign investment. This, too, decreased theincentive to emphasize WTO rules. Instead, perceptions of these rules as burdensome oras imposing excessive costs began to erupt. Subsequently, China implemented policiesthat could be seen as intended to mitigate the domestic impact of opening up its markets,including the Anti-Monopoly Law of the People’s Republic of China (implemented in2008), which has been heavily criticized as “bashing foreign firms.”
In addition, it became clear at around this time that the WTO Doha Round ofnegotiations was reaching a deadlock. China’s aim of using participation in multilateral
WTO trade liberalization negotiations as a way to be actively involved in the forming of
global trade rules crumbled as the Doha Round stagnated.
When the global economic and financial crisis broke out, starting in the US inautumn 2008, China launched large-scale emergency economic measures, increasing its
support of domestic industry, dominated by state-owned enterprises. These conditions
have been called “the advance of the state and the retreat of the private.” At this time,
China’s journey along the path toward reforming nationalized firms stalled, and the idea

of using compliance with WTO rules as external pressure to help advance reform andopenness became a thing of the past.
Thus China’s motivation for complying with WTO rules weakened. Under thecurrent Xi Jinping administration, the WTO is increasingly thought of as just one
international framework among many.
China’s FTA diplomacy
Starting in the 2000s, the Chinese government began to employ free trade agreements(FTAs) strategically. Up to now, China’s use of FTAs can be summarized as either (1) atool for strengthening relations with neighboring countries or territories, or (2) part ofensuring stable supplies of resources while also playing a role in security strategy. Suchcases as Taiwan, Hong Kong, and Macao can be seen as belonging to category (1),while category (2) would include both China’s military quasi-ally Pakistan (with which
China lacks a formal collective-defense treaty but cooperates extensively) and Iceland,
the FTA with the latter apparently formed with a view to securing future resources andshipping routes in the Arctic Ocean. The FTA with ASEAN has aspects of bothcategories (1) and (2).
By contrast, in its more recent FTAs with developed countries, China has been
focusing on concluding agreements with nations with larger trade volumes. A bilateral
FTA with South Korea reached a substantive settlement in November 2014 and wassubsequently signed in June 2015. This FTA, unlike others of recent years, involved arelatively low level of trade liberalization and could be described as an agreement thatpays heed to the industrial protectionism in both nations. However, it is clear that themere fact that substantive agreement was reached just two and a half years after theMay 2012 start of negotiations strengthened relations between the two countries. Now,
China’s approach toward the Trans-Pacific Partnership (TPP) and other large-scaleagreements currently under negotiation is the subject of much attention.
China’s involvement in large-scale, expansive FTA negotiations—such as thosefor the Japan-China-South Korea trilateral FTA and the Regional Comprehensive
Economic Partnership (RCEP)—appears, at least until recently, to have had, as part ofits intention, stimulating domestic demand-led growth and progress along the path
toward domestic reforms—in other words, of acting as a new “external pressure”
similar to that expected from the WTO in the earlier half of the 2000s. However, this
aspect of Chinese FTA engagement has vanished with the rapid rise of the current
government’s yīdài yīlù (“One Belt, One Road”) initiative. At the March National
People’s Congress, Commerce Minister Gao Hucheng stated, “The establishment of
free trade areas will be done on the basis of cooperation with China’s neighbors and will
provide coverage for the ‘One Belt, One Road’ initiative. We are endeavoring to build ahigh-standard FTA network globally.” Thus FTAs are now clearly part of the One Belt,
One Road strategy that China’s current government is implementing. In that sense,
China’s FTA strategy can be seen as a development or extension of its previous line ofstrengthening partnerships with neighboring countries.
WTO accession contributed greatly to the modernization of China’s trading system,
eventually establishing the country as a leading, responsible player in international trade.
However, the “external pressure” effect that was expected, at the time of joining theWTO, to advance domestic reforms has now weakened. As the venue whereinternational trading rules are created, WTO rounds of talks have also become stagnant,leaving FTAs as the principal field of trade rule-making. Within this environment,

countries around the world are focused on how the current Chinese government willinteract with the global trend toward ever-larger and more expansive free trade
agreements.